Week in Review: Investments, IPOs, and Corporate Taxes

The challenging IPO market is increasingly becoming a thorn in the side for many PE shops as those looking to exit on their mega-deals are finding that an unsatisfactory IPO may not fulfill their debt requirements. Corporates may also be looking at financial uncertainty next year as the corporate tax rates may rise (despite attempts to lower the rates) under either administration. Finally, looks like the U.S. food industry has been doing pretty well, despite the rising commodity prices.

Last week we also finished a short video with Member Tom Davidson, of the Davidson Capital Group, who stopped by our offices for a few hours. The video is below:

Last Week on Axial
696 Pursuits by Members on active Opportunities
90 new Members joined the Axial Network
156 new Opportunities were brought to market 

Check out the articles below:

Survey Says: Entering and Exiting Are Toughest Challenges in PE: According to a survey by KPMG, PE shops are worried about their investments — 23% are most worried about finding quality investments, while another 23% of PE shops are also most worried about exiting on their existing holdings. Given rising dry powder and a still unremarkable IPO market, these issues — although always a concern for PE shops — may be more acute than usual. Either way, PE shops are planning to invest more next year.

The Next Generation of Pre-IPO Financing? As some of the mega-deals from 2005-2008 look to go public in 2013, investors are beginning to wonder about the implications. With a sluggish IPO market, such a move could be risky. As Primack explains, if a company plans to use an IPO to settle some of its debt, an incomplete sale ($1.5B instead of the desired $2B) could leave the company with excess debt and unhappy shareholders. To mitigate the risk, companies have begun asking for, “large pre-IPO capital infusions that are used to preemptively repay debt.” Instead of buying at the IPO, certain investors would be able to buy up equity earlier at a discount. Could be an interesting trend to watch.

Why Corporate Taxes May Go Up Under Romney or Obama: November is almost here and political tensions are running higher than ever. Despite their many differences, both Romney and Obama agree that corporate taxes should be cut. Good, right? Maybe not. According to Sanati, an official tax cut for corporations could cost the businesses their deductions and tax credits (the loopholes that help bring taxes well below the 28% proposed by Obama and the 25% proposed by Romney). If Sanati is right, a tax cut could actually mean a tax hike.

U.S. Food Industry Update: Politics, Prices and Performance: Last week, Tully & Holland released its latest Food Industry Update. Given the summer drought and rising commodity prices, we were curious to see how the markets were reacting. According to the report, “The United States Food Industry continued its resilient growth.” Good news. Although top line expansion may be on the rise, margins are being squeezed. Other major trends include impact of the election on federal food policy, the obesity epidemic and its impact on food products, and increasing US exports. Overall, Q3 seems to have been a good quarter for food-related M&A.